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Contractual Agreements Are The Highest Level Of International Involvement
The creation or purchase of a 100% subsidiary requires the highest commitment of the international company, given that the company must assume the entire risk – financially, adjusted for monetary, economic and political variations. Exporting is usually the easiest way to enter an international market, and that`s why most companies start their international expansion with this entry model. Export is the sale of products and services abroad purchased in their country of origin. The advantage of this type of entry is that companies avoid the costs of setting up operations in the new country. However, companies must have the opportunity to market and market their products in the new country, which they usually do through contractual agreements with a local company or distributor. When it comes to exporting, the company needs to think about labelling, packaging and pricing the offer in accordance with the market. When it comes to marketing and promotion, the company needs to inform potential buyers of its offers, whether through advertisements, fairs, or a local field service. As we have seen, some companies choose to buy an existing company directly abroad to quickly enter a foreign market. In an acquisition, due diligence is important, not only from a financial point of view, but also from the side of the country`s culture and business practices.
For example, the annual disposable income in Russia is higher than that of all other BRIC countries (i.e. Brazil, India and China). For many large companies, Russia is too big and too rich to ignore as a market. But Russia also has a reputation for corruption and bureaucracy, which even its senior officials admit. In a BusinessWeek article, for example, economic adviser to President Arkady Dvorkovich (whose Kremlin office was once occupied by Soviet leader Leonid Brezhnev) advises that “investors should choose wisely” in which regions of Russia they set up their business and warns that some territories are more corrupt than others. Corruption makes the world less flat, precisely because it undermines the viability of legal vehicles such as licensing, which otherwise lead to a flatter world. Since nation-states have unique systems of government, laws and regulations, taxes, tariffs, currencies, cultures, practices, etc., international affairs are significantly more complex than those operating exclusively in domestic markets. It is customary for many international companies to conduct a cultural analysis of a foreign nation in order to better understand these factors and their impact on international business efforts. The concept of comparative advantage means that one nation has an advantage over other nations in terms of access to affordable land, resources, labour and capital. In other words, a country will export products or services that use a lot of factors of production. In addition, companies with sufficient capital may look for another land- or labor-rich country, or companies may try to invest internationally when their domestic market is saturated.
However, the challenge of international activity is that many companies combine both multinational and global aspects: the main task of international activity is to understand the very size of the global market. At present, there are more than 200 domestic markets in the world that offer a seemingly endless supply of international business opportunities. However, diversity among nations is fueled by unique considerations and a multitude of obstacles, such as: despite temporary setbacks during the global economic downturn just after the turn of the millennium, franchising is expected to remain the fastest-growing market entry strategy. . . .